The qui tam provisions of the False Claims Act have been enormously effective in enlisting private citizens to combat fraud against the government. Qui tam whistleblowers, also known as relators, have enabled the government to recover more than $70 billion. In fiscal year 2017 alone, qui tam actions brought by whistleblowers resulted in $3.4 billion in settlements and judgments, and the government paid $392 million in whistleblower awards to False Claims Act whistleblowers. Whistleblowers now initiate nearly 80 percent of False Claims Act recoveries.
In conjunction with co-counsel, Zuckerman has successfully represented whistleblowers disclosing off-label marketing, Medicare fraud, medical device fraud, DoD procurement fraud, and student loan fraud.
Described by the National Law Journal as a “leading whistleblower attorney,” founding Principal Jason Zuckerman has established precedent under a wide range of whistleblower protection laws and obtained substantial compensation for his clients and recoveries for the government in whistleblower rewards and whistleblower retaliation cases.
Three of the matters he has worked on are featured in Tom Mueller’s seminal book about whistleblowing Crisis of Conscience: Whistleblowing in an Age of Fraud and Dan Maldea’s Corruption in U.S. Higher Education: The Stories of Whistleblowers. False Claims Act qui tam cases he has worked on in conjunction with other attorneys have resulted in recoveries in excess of $100 million.
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The False Claims Act authorizes whistleblowers, also known as qui tam “relators,” to bring suits on behalf of the United States against the false claimant and obtain a portion of the recovery, otherwise known as a relator share. The phrase “qui tam ” is short for qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “who [qui ] sues in this matter for the king as well as [tam ] for himself.” U.S. ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 368 (7th Cir. 2016).
False Claims Act whistleblowers (also known as relators) are eligible to receive 10% to 30% of the recovery. In an intervened case, the relator can obtain 15% to 25% of the recovery, depending upon the extent to which the person substantially contributed to the prosecution of the action.
In a non-intervened case, the relator can obtain between 25% to 30% of the recovery. Additionally, a qui tam relator (whistleblower) who prevails in an FCA action-regardless of whether the government intervenes-is entitled to “reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs.” 31 U.S.C. § 3730(d). Qui tam whistleblower lawsuits have enabled the government to recover more than $60 billion.
The False Claims Act also protects whistleblowers from retaliation.
What types of false claims are prohibited by the False Claims Act? ExpandThe False Claims Act prohibits:
To prevail, a qui tam whistleblower must prove that:
The first-to-file bar prohibits a whistleblower from bringing suit based on a fraud already disclosed through identified public channels, unless the whistleblower is “an original source of the information.” Pursuant to the first-to-file bar, “[w]hen a person brings an action under [the False Claims Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The first-to-file bar encourages prompt filing.
The first-to-file bar underscores the importance of reporting fraud promptly and seeking counsel to evaluate potential claims.
What is the requirement to file a False Claims Act qui tam action under seal? ExpandThe False Claims Act requires that a qui tam action must be filed under seal and remain sealed for at least 60 days. This procedure enables the government to investigate the matter, so that it may decide whether to take over the relator’s action or to instead allow the relator to litigate the action in the government’s place. The purpose of the seal provision is to avoid alerting defendants to a pending federal criminal investigation. State Farm Fire and Cas. Co. v. US, 137 S. Ct. 436 (2016).
Failure to file under seal could potentially jeopardize a relator’s ability to recover a whistleblower bounty, but the False Claims Act does not require automatic dismissal for a seal violation
The “sealing period, in conjunction with the requirement that the government, but not the defendants, be served, was ‘intended to allow the Government an adequate opportunity to fully evaluate the private enforcement suit and determine both if that suit involves matters the Government is already investigating and whether it is in the Government’s interest to intervene and take over the civil action.” United States ex rel. Pilon v. Martin Marietta Corporation, 60 F.3d 995, 998-99 (quoting S. Rep. No. 345, 99th Cong., 2d Sess. 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289).
A False Claims Act retaliation claim can also be filed under seal (in conjunction with a qui tam action).
To initiate a False Claims Act qui tam action, the relator (whistleblower) must serve a copy of the qui tam complaint along with a “written disclosure of substantially all material evidence and information the [relator] possesses” on the Government. 31 U.S.C. § 3730(b)(2). The complaint remains under seal for at least 60 days, and shall not be served on the defendant. During this 60-day period, the Government is charged with investigating the allegations and “may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal.” 31 U.S.C. §§ 3730(b)(2), (3).
Before the 60-day period (or any extensions obtained) expire, the Government shall either “(A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.” 31 U.S.C. § 3730(b)(4).
What is a reverse false claim? ExpandReverse false claims liability arises where an entity or individual avoids the payment of money due to the government, e.g., failing to pay royalties owed to the government for mining on public lands.
Section 3729(a)(1)(G) creates liability for a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government,” or who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).
To establish reverse false claim liability, a qui tam relator must show:
Reverse FCA liability can be supported by “`proof that the defendant made a false record or statement at a time that the defendant owed to the government an obligation’ . . . to pay money or property.” Chesbrough v. VPA, P.C., 655 F.3d 461, 473 (6th Cir. 2011)).
The term “obligation,” as it is used in the FCA’s reverse false claims provision, expressly includes any “established duty, whether or not fixed, arising from. . . . the retention of any overpayment. 31 U.S.C.A. § 3729(b)(3). By statute, Medicare requires that “[a]n overpayment must be reported and returned” to the program no later than “the date which is 60 days after the date on which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(2). CMS has provided the following guidance regarding what it means to have “identified” an overpayment:
A person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.
42 C.F.R. § 401.305(a)(2). Internal audits can provide evidence that a provider knew about overpayments and chose not to return the overpayments to CMS.
What is the statute of limitations for a False Claims Act qui tam action? ExpandThe statute of limitations for a qui tam action is the longer of 1) six years from when the fraud is committed, or 2) three years after the United States knows or should know about the material facts, but not more than 10 years after the violation. Under § 3731(b)(2), the Government may bring an FCA action within up to 10 years of an FCA violation, provided that the suit was commenced within three years of the date that “the official of the United States charged with responsibility to act in the circumstances” knew or reasonably should have known of the facts material to the right of action.
In Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Supreme Court held that both Government-initiated suits under § 3730(a) and relator-initiated suits (qui tam actions) under § 3730(b) are civil actions under section 3730 and therefore the longer limitations period applies in non-intervened qui tam actions.
The relevant “official” whose knowledge triggers the three-year limitations period of § 3731(b)(2) is the Attorney General or his or her designees within the Department of Justice.
The statute of limitations for a False Claims Act whistleblower retaliation case is three years.
What is the public disclosure bar in the False Claims Act? ExpandThe public disclosure bar prohibits a qui tam relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A).
An original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing [suit].” § 3730(e)(4)(B).
The public disclosure bar asks whether the relator’s allegations are “substantially similar” to publicly available information. United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 836 (D.C. Cir. 2012). “Where a public disclosure has occurred, [the government] is already in a position to vindicate society’s interests, and a qui tam action would serve no purpose.” United States ex rel. Feingold v. AdminaStar Federal, Inc., 324 F.3d 492, 495 (7th Cir. 2003).
But the public disclosure bar does not dictate that a relator must “possess direct and independent knowledge of all of the vital ingredients to a fraudulent transaction.” United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994). Rather, “direct and independent knowledge of any essential element of the underlying fraud transaction” is sufficient to give the relator original-source status under the Act. Id. at 657.
In Springfield Terminal, the D.C. Circuit set forth specific criteria to evaluate whether the public disclosures bars a qui tam action:
A September 2018 Third Circuit decision in Pharamerica clarifies that the FCA’s public disclosure bar is not triggered when a relator relies upon non-public information to make sense of publicly available information, where the public information – standing alone – could not have reasonably or plausibly supported an inference that the fraud was in fact occurring. Similarly, the D.C. Circuit has held that the public disclosure bar is not triggered where the relator “supplied the missing link between the public information and the alleged fraud” by “rel[ying] on nonpublic information to interpret each [publicly disclosed] contract,” and where “[w]ithout [relator’s] nonpublic sources . . . there was insufficient [public] information to conclude” that the defendant actually engaged in the alleged fraud. United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923, 935 (D.C. Cir. 2017).
Courts in the Fifth Circuit apply a three-part test to determine whether the public disclosure bar applies, asking: “(1) whether there has been a `public disclosure’ of allegations or transactions, (2) whether the qui tam action is `based upon’ such publicly disclosed allegations, and (3) if so, whether the relator is the `original source’ of the information.” U.S. ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 173 (5th Cir. 2004) (quotations omitted). The Court is not required to rigidly follow the three steps. U.S. ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 327 (5th Cir. 2011). Indeed, the Fifth Circuit has recognized that “combining the first two steps can be useful, because it allows the scope of the relators’ action in step two to define the `allegations or transactions’ that must be publicly disclosed in step one.” Id.; see also U.S. ex rel. Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir. 2008) (combining the first two steps).
What is the original source exception to the public disclosure bar? ExpandThe public disclosure bar prohibits a relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A).
An “original source” is “an individual who either (1) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntary provided the information to the Government before filing an action.” § 3730(e)(4)(B).
If you have original information about fraud, it is important to retain counsel promptly. For example, if a government investigator interviews you before you have voluntarily come forward to disclose the fraud, your disclosure to the investigator will likely not qualify for any whistleblower award. See City of Chicago ex rel. Rosenberg v. Redflex Traffic Systems, 884 F.3d 798, 805 (7th Cir. 2018), citing United States ex rel. Paranich v. Sorgnard, 396 F.3d 326 (3d Cir. 2005) (voluntary requirement of federal False Claims Act “is designed to reward those who come forward with useful information and not those who provide information in response to a governmental inquiry”); Barth v. Ridgedale Electric, Inc., 44 F.3d 699, 704 (8th Cir. 1994) (qui tam relator did not “voluntarily provide” information to the government where government began its investigation first and investigator initiated interview with relator; “rewarding [relator] for merely complying with the government’s investigation is outside the intent of the Act.”)
What is materiality under the False Claims Act? ExpandThe False Claims Act (FCA) defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). In United States ex rel. Escobar v. Universal Health Servs., Inc., the Supreme Court held that FCA liability can attach for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.
In particular, the Escobar Court held that “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.” 136 S. Ct. 1989, 1995 (2016). A Fifth Circuit decision summarizes the core holding of Escobar:
A violation is material if a reasonable person “would attach importance to [it] in determining his choice of action in the transaction” or “if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter `in determining his choice of action,’ even though a reasonable person would not.”
United States ex rel. Lemon v. Nurses To Go, Inc., 924 F.3d 155, 163 (5th Cir. 2019) (quoting Escobar I, 136 S. Ct. at 2002-03 (alteration in original) (quoting Restatement (Second) of Torts § 538 (1976))).
In Escobar, the Court articulated the following factors governing the materiality analysis, with no one factor being necessarily dispositive:
